Budget 2023 and changes to the Alternate Minimum Tax
What is Alternate Minimum Tax (“AMT”)?
The AMT is a separate tax system which is designed to ensure that wealthy individuals (including certain trusts) with
high gross preferential incomes (such as dividends, capital gains) who might otherwise use various deductions and
credits to significantly reduce their tax liability still pay a minimum amount of tax.
AMT operates parallel with the regular tax system and taxpayers subject to AMT are required to compute their annual
tax liability under the regular method and the AMT method and must then pay the higher of the two calculated tax
amounts.
For instance, AMT could apply where a taxpayer claims the Lifetime Capital Gains Exemption (“LCGE”) on the sale
of their Qualified Small Business Shares (“QSBC”) or claims significant deductions from investments such as flow
through shares.
AMT paid in a given year in excess of regular tax may be carried forward seven years and can be deducted from the
ordinary tax liability that is in excess of AMT liability if certain conditions are met. If these credits are not utilized,
then the AMT becomes a permanent tax liability instead of a prepayment of tax.